Grangemouth: Doomed & 'unviable' Scots oil refinery makes £107m profit

Bosses at the Petroineos plant in Grangemouth established almost a century ago, had told staff that Scotland "simply won't be big enough to support a fuels refinery" due to falling demand putting at risk jobs both within the plant as well as outside contractors.

UK and Scottish ministers have offered no hope of intervening to save the key refinery as it emerged North Sea revenues over two years are set to soar to £17.25bn.

The refinery is symbolic of Scotland's 'black gold' which would be used by the Scottish National Party during the 1970s in making their economic case for independence from the rest of the UK. It was argued that North Sea oil would not benefit the nation to any significant degree while the nation remained part of the United Kingdom.

Company sources had said that the size of the losses in previous years incurred by the company were at a level that could not be sustained by any government support.

"It would not be economically viable," said a source.

The company that operates the refinery had at that point made total losses of £361.64m in 2020 and 2021.

READ MORE: How Scotland's 'black gold' made Grangemouth's closing refinery iconic

It came as the value of its assets including the old refinery, equipment and other property declined by £383m as of 2021 described as an 'impairment loss'.

That came after Petroineos cut the capacity of the refinery with an estimated loss of up to 200 jobs in 2020, as the hit to fuel demand from the coronavirus pandemic hit profits across the industry.

But now the Herald can reveal that Petroineos Manufacturing Scotland Limited, which owns and operates the refinery has made a record pre-tax profit for 2022 of £107,476,000, following a £50.568m loss the previous year with company bosses admitted that the pandemic years of 2020 and 2021 had had a "pervasive effect" on the business.

Its previous profit high in recent years was the £25.20m gained in 2017.

A February briefing by director Andrew Pizzey, has stated that it had seen a "full recovery" from Covid with "all product grades back to pre-pandemic levels". "As a consequence, the business expects to have another good year, despite unavoidable disruption to throughput as the refienry performs a turnaround on its hydrocracker complex," he said.

It has been estimated that £60-80m would be needed to re-start the hydrocracking unit at Grangemouth which some say will pave the way to profitability and a lifeline for the refinery and hundreds of jobs.

In general, major products produced from hydrocracking are jet fuel and diesel but Liquefied Petroleum Gas (LPG) can also be produced.

Experts say the cost of repairing the Grangemouth unit which went offline in April, last year, and has not been working since has played a key part in its anticipated closure.

But Mr Pizzey said that the longer-term outlook for European refining remains "challenging" and that the aim is to operate the refinery "with a lower base cost structure".

Former justice secretary now East Lothian MP and Alba Party deputy leader Kenny MacAskill, who has been leading a fight to save the refinery said: "The plant is profitable and a fraction of the revenue from North Sea oil allows it to be further increased.

"North Sea oil is and has been pivotal to the UK economy. It's perverse that Scotland’s oil should be refined elsewhere and that Scotland's industrial base is trashed whilst the UK Treasury coins in the cash."

He has been calling for a tiny fraction of the profits from the North Sea to save the refinery.

"If Grangemouth is allowed to shut Scotland will be the only major oil producing nation without a refinery," he said "It will put us alongside developing nations such as the Republic of Congo and Trinidad and Tobago both of whom produce less oil than Scotland.

READ MORE: 'Grangemouth fraud': Ministers hopes of being 'world leaders' in green fuel in doubt.

"The UK has made billions from North Sea oil. They’re providing hundreds of millions to Ineos to open a plant in Belgium and have funded foreign battery plants in England to a similar tune. Its time a modest sum was given to Grangemouth from all the billions taken from the North Sea to shore up Scotlands economy."

Staff were told in November that a start had been made on projects that would see the Grangemouth plant transition from a refinery to potentially an imported fuels depot over the next five years.

Refinery owner Petroineos - the joint venture between Ineos Group - the petrochemicals giant controlled by billionaire tycoon Sir Jim Ratcliffe - and China’s state-backed PetroChina - which bought the refinery in 2005, said it will remain a refinery until spring 2025 and that jobs would remain safe in the short term.

The campaign to save the refinery has been supported by legendary Scots band The Proclaimers who have stated in a video message (above) that it cannot be “Grangemouth No More”.

Their comments are a reference to their 1987 hit ‘Letter From America’ which featured on their debut studio Album This is the Story.

The famous lyrics of “Bathgate no more, Linwood, no more Methil no more, Irvine no more…” are a reference to the decline of Scottish industry in the 1980s.

Video:  The Proclaimers' big hit Letter From America.

According to Petroineos, it has a refining capacity of 150,000 barrels per day while Grangemouth plays a leading role in supplying Scotland’s fuel demand, and is of strategic importance to the nation's energy supply and regional economic development.

It is connected to the Forties Pipeline System (FPS) for its crude oil intake from the North Sea and connected to Finnart Ocean Terminal for crude oil import and finished products export.

In November 2020 it emerged that two production plants at the site, which had not been operational since the Covid lockdown the previous March were being mothballed. It said the move will reduce future operating costs at the site.

A few months earlier, the energy firm sought a government loan package worth hundreds of millions of pounds amid low oil demand which was triggered by the coronavirus pandemic.

The request for the joint venture's loan followed Ineos owner Sir Jim Ratcliffe's move to Monaco for what were alleged to be tax reasons.

It is understood Petroineos had been in talks for weeks with the Scottish and UK governments about a loan package.

Ineos said at the time: “It should not come as any surprise that the refinery is talking to the government at a time when demand for fuel has fallen significantly during the period of lockdown,” before adding that “the request is not from Ineos but from Petroineos, a 50-50 joint venture between Ineos and Petrochina”.

The joint-venture believed it could have “a viable longer-term business” employing up to 450 workers at the site. In 2020 there were 637 full-time staff there.

At the time, Scotland's infrastructure secretary Michael Matheson described the job losses as "devastating" and vowed the Scottish Government would do everything it could to help affected employees.

Energy minister Gillian Martin has expressed ambitions for Grangemouth to become "world leaders in biofuels/sustainable aviation fuel".

But Grangemouth bosses have raised serious doubt over a transition to a green fuel biorefinery saying the current position is "commercially suboptimal".

Much of the losses in the pandemic-hit years of 2020 and 2021 were down to what is called an "impairment charge" which relates to a drop in the value of its property, which counts as a loss on financial statements.

Some £383m dropped from its value, in the wake of resizing its operations from November 2020. It then announced the closure of one of its crude distillation units and its fluid catalytic cracking unit.

The cut in capacity of the refinery led to an estimated loss of up to 200 jobs in 2020, as the hit to fuel demand from the coronavirus pandemic hit profits across the industry.

Petroineos has commenced early study work focused on the future establishment of a biofuels refinery at Grangemouth capable of producing sustainable aviation fuel.

And the Scottish Government hope that Grangemouth will become home to "Scotland's only sustainable aviation fuel production plant, capable of meeting future aviation demands for decades to come".

But Petroineos while noting the ambitions has indicated that there were "fiscal and policy obstacles".

It centres around on the UK cap on sustainable aviation fuel (SAF) produced from oils and fats feedstocks such as used cooking oil (UCO).

And Iain Hardie, head of legal affairs has said the cap will need to be addressed as it puts the UK at a disadvantage in comparison to Europe.

The Petroineos executive felt that it will "hinder progress of delivering bio fuels at pace".

Andrew Bowie, the parliamentary under secretary of state at the Department for Energy Security and Net Zero said there had been a meeting with executives at Petroineos on November 23, last year to discuss options for the future of the site, long term fuel security for Scotland, and consideration of jobs at the site.

He said: "Any potential decisions regarding future energy projects at the site are a private commercial matter."

Workers at the refinery have slated the Scottish and UK governments over their failure to jointly develop proposals which could help protect hundreds of jobs at the complex.

A survey conducted by the Unite union involving hundreds of refinery workers, including contractors "strongly indicates" that the workforce believe there has been a "collective failure" to support them following the announcement by Petroineos to being the transition.

The survey found that 93% agreed that the potential impact of any potential closure on the local Grangemouth economy and that of surrounding communities would be ‘severe'.

Some 88% said that politicians were not doing enough to support and protect jobs at Grangemouth; And only 11% expressed ‘confidence’ in finding a “like for like” job in the event of refinery operations ceasing at the Grangemouth site; Only three percent expressed confidence in the ongoing “just transition” plans for oil and gas workers.

The refinery produces a range of fuels including petrol, diesel, kerosene, LPG and jet fuel and currently employs around 500 and it is understood there are hundreds of contractor workers that support staff. Ineos employs another 450 staff on the site at Forties Pipeline Services and a further 1,000 in its petrochemicals business.

The 1,700-acre site is estimated to supply 70% of the fuel to Scotland's filling stations as well Northern Ireland and the north of England.

It is the primary supplier of aviation fuel for Scotland’s main airports, and a major supplier of petrol and diesel ground fuels across the central belt.

A Scottish Government spokesman said:  “Petroineos management has been clear that this decision is a commercial one, and has been taken due to global factors. 

“The commencement of preparatory work on a new import infrastructure at Finnart and Grangemouth will help futureproof the Grangemouth industrial cluster as part of its Just Transition to Net Zero.

"We are committed to working with industry to secure a sustainable future for Grangemouth that reflects our ambitions for decarbonisation and a just transition for Scotland’s industrial sector and communities, whilst recognising the important role it plays in meeting fuel demand in Scotland.”

A UK Government spokesman added: "We know this is a concerning time for workers and their families, and are working closely with Grangemouth refinery on the long-term future of the site and how they are supporting staff.

“The UK Government will always back the North Sea oil and gas sector and green industries, such as offshore wind and carbon capture and storage, to protect our energy security, attract investment and create opportunities for communities in Scotland and across the UK.”